When you josh, you joke around, teasing and bantering. You probably josh your brother about the weird things he says when he talks in his sleep.
Most people laugh when someone joshes with them, although others take offense or don't realize that you're only joking. Your favorite uncle might josh around with you, making you giggle, and you can josh right back at him, teasing him for his silly mustache. Josh comes from American slang, from the boy's name Joshua, although it's not clear why this name was used to mean "be silly."